Microsoft partners with Chinese state-owned defense conglomerate to promote, sell Windows 10 to government

Creates joint venture with China Electronics Technology Group Corp. to license, support Windows 10 in government agencies and some state-run enterprises

Microsoft yesterday expanded its partnership with one of China's largest defense and technology conglomerates as it announced a joint venture to get Windows 10 on government PCs in the People's Republic.

The U.S. company will partner with China Electronics Technology Group (CETC) to create C&M Information Technologies -- the name is provisional and the move will require Chinese regulatory approval -- to license Windows 10 to government agencies and some state-owned corporations, including those that control energy, telecommunications and transportation. C&M will also provide the necessary backend services, including product activation, patch management and support for Windows 10.

C&M Information Technologies is the fruit of collaboration that Microsoft and CETC announced in September, when Microsoft said the partnership was designed to provide "operating system technology and services for Chinese users in specialized fields in government institutions and critical infrastructure state-owned enterprises."

That September partnership was unveiled the day President Xi Jinping kicked off a U.S. visit with tours of Microsoft and Boeing, dined with Microsoft co-founder Bill Gates, and met with other American tech CEOs at a forum hosted by Microsoft on its Redmond, Wash. campus.

CETC is an interesting partner, as it is one of 10 state-owned behemoths in the defense sector, according to the Jamestown Foundation. CETC manages scores of research institutes and more than 180 commercial subsidiaries, most of them involved in defense-related research and development, the production of defense and dual-use electronics, or supplying the People's Liberation Army (PLA) and government agencies and state-run companies with technology products.

Some of the research institutes are much older than the 15-year-old CETC, and hark back to the days of Mao Zedong. While some of CETC's entities focus on consumer and enterprise technology, the bulk serve both domestic civilian and military markets, often with very blurred lines differentiating the two.

Under the deal Microsoft struck with CETC, C&M will be the exclusive licensee of Windows 10 to government and select state-owned corporations. C&M will create custom Windows 10 images for those customers that will include government-mandated anti-virus software; provide activation and update services -- presumably based on Microsoft's current technologies -- as well as deployment services and support; and collect feedback to guide future updates and upgrades.

The customization could steer Windows 10 for C&M's customers in a different direction than the version that Microsoft delivers to others in China, the U.S. and globally. Feedback collected by C&M, said Microsoft, would be used to "inform the creation of the successive updates of the government Windows 10 image, which may be developed by the joint organization [emphasis added]."

Likely because of its partner's relationship with China's government and the PLA -- along with the government's on-again, off-again attempts to twist the arms of Western technology firms to install "back doors" and let it examine source code -- Microsoft went preemptive to calm critics.

"Importantly, we will maintain ownership of the core Windows 10 technology while working, as we've always done, to allow customers and partners to build components that plug into our platform," wrote Yusuf Mehdi, a senior executive in the Windows and devices group, in a post to a company blog Thursday. "We'll continue to keep Windows 10 secure and sustain our strong privacy standards, while recognizing that public sector solutions may differ from technology offered to private sector enterprises and consumers around the world."

Microsoft has had a mixed experience in China, where its wares have historically been extensively pirated. The nadir of its relationship with the PRC's government was in 2014, when the Central Government Procurement Center banned Windows 8 from agencies' PCs. That year, antitrust regulators also threatened action, then raided several Microsoft in-country offices to seize computers, emails and financial data.

At the same time, China's state-controlled media made much of renewed efforts to create a home-grown operating system that would break the country's dependence on Western technologies by the likes of Microsoft and Apple.

The deal with CETA, and the C&M joint venture, would seem to signal that Microsoft has thwarted such alternate OS efforts.

This year, Microsoft has also announced multiple partnerships with Chinese companies to push Windows 10 in the massive market; the partnership with CETC is only the latest in a string of similar moves along those lines.

In September, Microsoft struck a deal with Baidu, China's largest search provider, to market and promote Windows 10. In return, Microsoft agreed that Baidu would replace the default Bing as the OS's default search engine.

For its part, a link on Baidu leads to an application called "Windows 10 Express," checks a PC for upgrade eligibility, runs a system scan to ensure the machine is able to handle the new OS, and then begins the upgrade download. The download count of the app stood at nearly 1.4 million as of Friday.

According to Baidu's own statistics -- based on the browsers and operating systems used to access its search site -- Windows 10 powered just 2.4% of the China's PCs in November. That's far short of the 9% user share of Windows 10 globally as measured by U.S.-based analytics vendor Net Applications for the same month.

Baidu's data also showed a continued slow decline of Windows XP, which Microsoft retired in 2014 and a nearly identical increase in Windows 7, hinting that those deserting the aged OS went to the 2009 standard.

Windows 8 never caught on in China -- just as it failed worldwide -- but its 5.6% and Windows 7's 52.7% combine for a huge opportunity for Microsoft to add devices to Windows 10 as it tries to reach a goal of 1 billion worldwide by mid-2018.

Windows 10 share in plc Data: Baidu, StatCounter, Net Applications

Microsoft's Windows 10 has gotten off to a much slower start in China than the global average, according to Baidu, the country's largest search provider.

Copyright © 2015 IDG Communications, Inc.

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